6 Benefits of Investing in Cryptocurrencies

  The birth of bitcoin in 2009 opened doors to investment opportunities in an entirely new kind of asset class - cryptocurrency. Lots entered the space way early.

Intrigued by the immense potential of these fledgling but promising assets, they bought cryptos at cheap prices. Consequently, the bull run of 2017 saw them become millionaires/ billionaires. Even those who didn't stake much reaped decent profits.

Three years later cryptocurrencies still remain profitable, and the market is here to stay. You may already be an investor/trader or maybe contemplating trying your luck. In both cases, it makes sense to know the benefits of investing in cryptocurrencies.

Cryptocurrency Has a Bright Future

According to a report titled Imagine 2030, published by Deutsche Bank, credit and debit cards will become obsolete. Smartphones and other electronic devices will replace them.

Cryptocurrencies will no longer be seen as outcasts but alternatives to existing monetary systems. Their benefits, such as security, speed, minimal transaction fees, ease of storage, and relevance in the digital era, will be recognized.

Concrete regulatory guidelines would popularize cryptocurrencies, and boost their adoption. The report forecasts that there will be 200 million cryptocurrency wallet users by 2030, and almost 350 million by the year 2035.

Opportunity to be part of a Growing Community

WazirX's #IndiaWantsCrypto campaign recently completed 600 days. It has become a massive movement supporting the adoption of cryptocurrencies and blockchain in India.

Also, the recent Supreme Court judgment nullifying RBI's crypto banking ban from 2018 has instilled a new rush of confidence amongst Indian bitcoin and cryptocurrency investors.

The 2020 Edelman Trust Barometer Report also points out peoples' rising faith in cryptocurrencies and blockchain technology. As per the findings, 73% of Indians trust cryptocurrencies and blockchain technology. 60% say that the impact of cryptocurrency/blockchain will be positive.

By being a cryptocurrency investor, you stand to be a part of a thriving and rapidly growing community.

Increased Profit Potential

Diversification is an essential investment thumb rule. Especially, during these times when the majority of the assets have incurred heavy losses due to economic hardships spurred by the COVID-19 pandemic.

While investment in bitcoin has given 26% returns from the starting of the year to date, gold has returned 16%. Many other cryptocurrencies have registered three-digit ROI. Stock markets as we all know have posted dismal performances. Crude oil prices notoriously crashed below 0 in the month of April.

Including bitcoin or any other cryptocurrencies in your portfolio would protect your fund's value in such uncertain global market situations. This fact was also impressed upon by billionaire macro hedge fund manager Paul Tudor Jones when a month back he announced plans to invest in Bitcoin.

Cryptocurrency Markets Are On 24X7X365

As opposed to usual markets, cryptocurrency markets operate round the clock, all days in a year without fatigue. That's because digital currency systems are essentially designed using pieces of software code that are secured by cryptography.

The operational blueprint doesn't involve human interference. So, you are free to trade crypto or invest in digital assets whenever you want to. That's a great benefit! Cryptocurrency markets are very efficient that way.

Cryptocurrencies are the latest 'big thing' in the digital world and have now been recognized as being part of the monetary system. In fact, enthusiasts have tagged it as 'the revolution of money'.

In clear terms, cryptocurrencies are decentralized digital assets that can be exchanged between users without the need for a central authority, the majority of which being created via special computation techniques referred to as 'mining'.

The acceptance of currencies, like the US Dollar, Great British Pound and the Euro, as legal tender is because they have been issued by a central bank; digital currencies, however, such as cryptocurrencies, are not reliant on the confidence and trust of the public on the issuer. As such, several factors determine its value.

Factors that Determine the Value of Cryptocurrencies

Principles of Free Market Economy (Mainly Supply and Demand)

Supply and demand is a major determinant of the value of anything of value, including cryptocurrencies. This is because if more people are willing to buy a cryptocurrency, and others are willing to sell, the price of that particular cryptocurrency will increase, and vice versa.

Mass Adoption

Mass adoption of any cryptocurrency can shoot its price to the moon. This is due to many cryptocurrencies having their supply capped at a particular limit and, according to economic principles, an increase in demand without a corresponding increase in supply will lead to a price increase of that particular commodity.

Multiple cryptocurrencies have invested more resources to ensure their mass adoption, with some focusing on the applicability of their cryptocurrency to pressing personal life issues, as well as crucial day-to-day cases, with the intention of making them indispensable in everyday life.

Fiat Inflation

If a fiat currency, like the USD or GBP, becomes inflated, its price rises and its purchasing power drops. This will then cause cryptocurrencies (let's use Bitcoin as an example) to increase with respect to that fiat. The result is that you will be able to acquire more of that fiat with each bitcoin. In fact, this situation has been one of the major reasons for Bitcoin's price increase.

Scams and Cyber Attack History

Scams and hacks are also core factors affecting the value of cryptocurrencies, as they are known to cause wild swings in valuations. In some cases, the team backing a cryptocurrency may be the scammers; they'll pump the price of the cryptocurrency to attract unsuspecting individuals and when their hard-earned money is invested, the price is shortened by the scammers, who then disappear without a trace.

In the early days of its launch in 2009, several thousand bitcoins were used to buy a pizza. Since then, the cryptocurrency's meteoric rise to US$65,000 in April 2021, after its heart-stopping drop in mid-2018 by about 70 percent to around US$6,000, boggles the mind of many people - cyptocurrency investors, traders or just the plain curious who missed the boat.

How it all began

Bear in mind that dissatisfaction with the current financial system gave rise to the development of the digital currency. The development of this cryptocurrency is based on blockchain technology by Satoshi Nakamoto, a pseudonym apparently used by a developer or group of developers.

Notwithstanding the many opinions predicting the death of cryptocurrency, bitcoin's performance has inspired many other digital currencies, especially in recent years. The success with crowdfunding brought on by the blockchain fever also attracted those out to scam the unsuspecting public and this has come to the attention of regulators.

Beyond bitcoin

Bitcoin has inspired the launching of many other digital currencies, There are currently more than 1,000 versions of digital coins or tokens. Not all of them are the same and their values vary greatly, as do their liquidity.

Coins, altcoins and tokens

It would suffice at this point to say there are fine distinctions between coins, altcoins and tokens. Altcoins or alternative coins generally describes other than the pioneering bitcoin, although altcoins like ethereum, litecoin, ripple, dogecoin and dash are regarded as in the 'main' category of coins, meaning they are traded in more cryptocurrency exchanges.

Coins serve as a currency or store of value whereas tokens offer asset or utility uses, an example being a blockchain service for supply chain management to validate and track wine products from winery to the consumer.

A point to note is that tokens or coins with low value offer upside opportunities but do not expect similar meteoric increases like bitcoin. Put simply, the lesser known tokens may be easy to buy but may be difficult to sell.

Before getting into a cryptocurrency, start by studying the value proposition and technological considerations viz-a-viz the commercial strategies outlined in the white paper accompanying each initial coin offering or ICO.

For those familiar with stocks and shares, it is not unlike initial public offering or IPO. However, IPOs are issued by companies with tangible assets and a business track record. It is all done within a regulated environment. On the other hand, an ICO is based purely on an idea proposed in a white paper by a business - yet to be in operation and without assets - that is looking for funds to start up.

Unregulated, so buyers beware

'One cannot regulated what is unknown' probably sums up the situation with digital currency. Regulators and regulations are still trying to catch up with cryptocurrencies which are continuously evolving https://www.mediasnet.net/. The golden rule in the crypto space is 'caveat emptor', let the buyer beware.

Some countries are keeping an open mind adopting a hands-off policy for cryptocurrencies and blockchain applications, while keeping an eye on outright scams. Yet there are regulators in other countries more concerned with the cons than pros of digital money. Regulators generally realise the need to strike a balance and some are looking at existing laws on securities to try to have a handle on the many flavours of cryptocurrencies globally.

Digital wallets: The first step

A wallet is essential to get started in cryptocurrency. Think e-banking but minus the protection of the law in the case of virtual currency, so security is the first and last thought in the crypto space.

Wallets are of the digital type. There are two types of wallets.

Hot wallets that are linked to the Internet which put users at risk of being hacked

Cold wallets that are not connected to the Internet and are deemed safer.

Apart from the two main types of wallets, it should be noted that there are wallets just for one cryptocurrency and others for multi-cryptocurrency. There is also an option to have a multi-signature wallet, somewhat similar to having joint account with a bank.

The choice of wallet depends on the user's preference whether the interest purely in bitcoin or ethereum, as each coin has its own wallet, or you can use a third-party wallet that include security features.

Wallet notes

The cryptocurrency wallet has a public and private key with personal transaction records. The public key includes reference to the cryptocurrency account or address, not unlike the name required for one to receive a cheque payment.

The public key is available for all to see but transactions are confirmed only upon verification and validation based on the consensus mechanism relevant to each cryptocurrency.

The private key can be considered to be the PIN that is commonly used in e-financial transactions. It follows that the user should never divulge the private key to anyone and make back-ups of this data which should be stored offline.

It makes sense to have minimal cryptocurrency in a hot wallet while the bigger amount should be in a cold wallet. Losing the private key is as good as losing your cryptocurrency! The usual precautions about online financial dealings apply, from having strong passwords to being alert to malware and phishing.

Wallet formats

Different types of wallets are available to suit individual preferences.

Hardware wallets made by third parties which have to be purchased. These devices work somewhat like a USB device which is deemed safe and only connected when required to the Internet.

Web-based wallets provided, for example, by crypto exchanges, are considered hot wallets which purt users at risk.

Software-based wallets for desktops or mobiles are mostly available for free and could be provided by coin issuers or third parties.

Paper-based wallets can be printed bearing the relevant data about the cryptocurrency owned with public and private keys in QR code format. These should kept in a safe place until required in the course of crypto transaction and copies should made in case of accidents such as water damage or printed data fading through passage of time.

Crypto exchanges and marketplaces

Crypto exchanges are trading platforms for those interested in virtual currencies. The other options include websites for direct trading between buyers and sellers as well as brokers where there is no 'market' price but it is based on compromise between parties to the transaction.

Hence, there are many crypto exchanges located in various countries but with differing standards of security practices and infrastructure. They range from ones allowing for anonymous registration requiring just email to open an account and start trading. Yet there are others that require users to comply with international identity confirmation, known as Know-Your-Customer, and anti-money laundering (AML) measures.

The choice of crypto exchange depends on the user's preference but anonymous ones may have limitations on the extent of trading allowed or could be subject to sudden new regulations in the country of domicile of the exchange. Minimal administrative procedures with anonymous registration let users start trading quickly while going through KYC and AML processes will take more time.

All crypto trades have to be duly processed and validated which can take from few minutes to few hours, depending on the coins or tokens being transacted and volume of trade. Scalability is known to be an issue with cryptocurrencies and developers are working on ways to find a solution.

Cryptocurrency exchanges are in two catergories.

Fiat-cryptocurrency Such exchanges provide for fiat-cryptocurrency purchase via direct transfers from bank or credit and debit cards, or via ATMs in some countries.

Cryptocurrency only.There crypto exchanges dealing in cryptocurrency only, meaning customers must already own a cryptocurrency - such as bitcoin or ethereum, - to be 'exchanged' for other coins or tokens, based on market rate

Fees are charged to facilitate the purchase and sale of crypto currencies. Users should do the research to be satisfied with the infrastructure and security measures as well as to determine the fees they are comfortable as different rates charged by various exchanges.

Do not expect a common market price for the same cryptocurrency with difference exchanges It may be worthwhile to spend time doing research on the best price for coins and tokens that are of interest to you.

Financial transactions online carry risks and users should factor in the caveats such as two factor authentication or 2-FA, keeping updated on the latest security measures and being aware of phishing scams. One golden rule on phishing is not to click on links provided, no matter how authentic a message or email is.